Erceg Partners

09/11/2020

Not much choice on the part of Simon and Brookfield, but does not make it right. We should expect to see more of this in the future, but it really is not a good strategy. For years, we have been separating the capital stack in finance, and real estate was spun out as non-core to companies. Think McDonald’s and now the years of REITs. Now, Simon and Brookfield saving JCP only delays the inevitable — Simon and Brookfield will be subsidizing retail to delay the lumps of the changing real estate landscape. With more and more shopping going online, how much more retail can landlords save? Not nearly as much as will need saving. This will probably work out, but as a long term strategy, don’t bet on it.

The deal could save upwards of 70,000 jobs.

09/02/2020

And who said judges can’t innovate?

Having studied law, I have read many opinions where judges have clearly brought “novel” verdicts and rulings. This is a commendable note on the Hon. Judge Jones innovating in the legal system. For those unaware, Texas is home to some of the most important courts in the country, including the Federal bankruptcy courts that are the busiest. So, when you think you can’t innovate further, think about Judge Jones!

Judge David Jones implemented a series of reforms that created a special two-judge panel to handle the biggest and most complicated corporate restructurings.

08/07/2020

By Luka Erceg, San Diego, CA With steady frequency, we hear on the news how a Ponzi scheme manages to defraud investors of hundreds of millions or billions of dollars. Madoff, Stanford, Petters, and now Champion-Cane.

08/05/2020

More Parties Need to Go to Jail: Criminal Negligence Liability for Investment Managers Is Long Overdue

By Luka Erceg, San Diego, CA With steady frequency, we hear on the news how a Ponzi scheme manages to defraud investors of hundreds of millions or billions of dollars. Madoff, Stanford, Petters, and now Champion-Cane.

08/03/2020

TikTok pendulum swings to again! Clearly CEO Satya has lobbying chops to convince Trump administration to ease off. Trump administration creates the distress that will allow MSFT to buy TikTok at a distressed valuation. Again the "white knight", I am surprised that a traditional news house or hedge fund did not step in as a competitor for TikTok deal.

Missed opportunity for others, but unclear value for , CEO Satya's mobile wizardry will advance TikTok in US for MSFT, but there is no real advantage brought by MSFT in this sector.

Don't expect the TikTok pendulum to stop swinging. Though it never hurts to have the US government create a distressed buying opportunity for you.

https://www.washingtonpost.com/business/2020/08/02/microsoft-says-it-intends-continue-discussions-with-tiktok-acquisition-after-conversation-with-trump/

Microsoft said in a blog post that chief executive Satya Nadella and President Trump had spoken and that the company is committed to addressing Trump’s concerns about the social media platform. Trump previously said he was not in favor of a deal and planned to ban TikTok in the United States.

08/02/2020

‪White knight no more! Clearly does not have the necessary pull to save TikTok from Washington scrutiny. Is this indicative of a broader lack of trust in the tech giant, or the tech sector in general? Probably all of the above wrapped in geopolitics.https://www.foxnews.com/tech/microsoft-bytedance-halt-tiktok-talks-after-trump-signals-opposition‬

Microsoft Corp. has paused negotiations to buy the U.S. operations of the video-sharing app TikTok after President Trump said late Friday he opposed the deal, according to people familiar with the matter.

08/02/2020

‪Microsoft TokTok white knight? Really? is top the US search engine in China, not . Why? Google refuses to restrict searches and share data with PRC, hence banned — not Microsoft [Bing]. So now TikTok by Microsoft will protect user data while already cooperating with the PRC government? If this story is true, or does come to fruition, it is hard to imagine that Microsoft’s relationship is the answer. Microsoft helped China build its great internet firewall. Notice the incongruity?

Now, in fairness to Microsoft, its China Azure services are operated by under license, not by Microsoft directly. 21Vianet is a China based company, so it is the one complying with PRC internet restrictions. Let’s understand this: Microsoft licenses its entire platform to avoid complying with the PRC directly — out of site, out of mind. It is still hard to reconcile that Microsoft is a true white knight. They still profit from the exploitation of their technology in China, demonstrating their prowess at working with governments, so maybe its plausible they can divorce non-China based users of TikTok from PRC data centers enough to give the US government comfort user data is not being shared so the services are not shutdown. Microsoft the TikTok white knight. https://www.foxnews.com/politics/tiktok-here-for-the-long-run-trump-floats-ban-security-fears‬

TikTok on Saturday said it’s “here for the long run” and “not planning on going anywhere” after President Trump said he intends to ban the popular video app over widespread concerns about data security.

08/01/2020

‪It’s Show Time! With the COVID curtain drawn on theaters, the historic Universal/AMC deal to debut theatrical releases quicker on VOD is a prime example of great business innovation. In the doldrums of empty theaters, its show time for great content desperately needed by Americans looking for great content. https://www.chicagotribune.com/entertainment/movies/ct-ent-universal-amc-theatres-debut-vod-early-20200728-yxkyjrap7jgefdmexoor5yymcq-story.html‬

The pact, sure to send shockwaves throughout the exhibition industry, has the potential to reshape the ways that movies are marketed and distributed.

07/31/2020

The next pandemic ... global failure of small business enterprises ... due to a lack of liquidity. Small business has an outsized importance on more than just the US economy. In the UK, small business also employs 60% of the workforce, generating GBP2.2 trillion (~US$2.9 trillion) in revenues in 2019 — relatively familiar statistics. Unlike in the US, small businesses taking part in government bailouts in the UK will not benefit from forgiveness of debt.

The bigger issue is UK small businesses had less than $7,000 cash on hand at the end of 2019 — meaning bailouts are meaningless as the small business sector will not have the necessary working capital to restart, especially with false or sputtering starts from shutdowns. Gradual restarts only prolong the cash drag on businesses.

All of this should be eerily similar to what we face in the US. Without a focus on small business we will witness a jobless recovery where the markets rebound but employment does not. Worse yet, jobs will decline with the inevitable consumer and small business bankruptcies. Recall, when small business fails, it does not restructure, it shuts down, unlike large enterprise. So, like in the UK, we are in the calm before the storm.

More than four months since lockdown began, many companies are running out of cash

07/30/2020

With so much certainty around COVID-19 let’s not rush headlong into barring COVID-19 lawsuits, or more pandering to the insurance industry. Many insurance contracts already have exclusions for viral pandemics, communicable diseases, contamination, and a host of other mechanisms for both insureds and insurers to avoid payment for liability. Thus, one would say that the “invisible hand” of the economy has been at work with parties having had the ability to insure themselves or not, to protect against losses from COVID-19 or other viruses. We must allow these contracts to be tested such as the Toyota Center lawsuit against Affiliated FM Insurance, and not be quick to simply smother through blanket legislative actions. It is the proper place of government to set standards and safe harbors, it is the proper place of courts to determine whether parties have met the standards to avoid liability. Let’s allow the “invisible hand” and “blind lady justice” do their thing. Yes, it may be painful, with bankruptcies at all levels, but that is not an excuse to upend or legal or economic system.
https://www.npr.org/sections/money/2020/07/28/895947722/should-we-shield-businesses-from-covid-19-lawsuits

The debate over liability and the coronavirus.

07/28/2020

‪Day late, dollar short to innovate ... Neiman should’ve been downsizing/selling stores before COVID. Why did they need to own prime real estate? Missed that cost of capital lesson. Try innovating in your business BEFORE bankruptcy!‬

‪https://finance.yahoo.com/news/neiman-approaches-landlords-mix-tactics-214404403.html‬

The luxury retailer won't close many stores but is negotiating to lower rents and get other concessions from landlords at many locations.

07/21/2020

Vertical integration by landlords, a great strategy! It is often said in the venture capital world that your landlord is your most important investor. There are few sectors beyond retailing where this could not be more true. While work-from-home may be a turning point for many industries, it simply is not for retailers. With a veritable onslaught of bankruptcies around the corner, it really costs landlords little to save their tenants. In fact, their returns will likely be stupendous, recovering their debts, taking over valuable brand properties, that will eventually emerge as cash paying tenants again, plus reaping a large return on the minimal capital they invest. Much of their investments will be recouped through the rents they will control. Brilliant!

America's mall owners are coming to the rescue during the coronavirus pandemic to salvage bankrupt retailers. Will it work?